reports Netflix For the third quarter of 2022, which were published last night, are the last in which the company will not report advertising revenue, this after last week it announced that it is advancing the launch of its new service that will include advertising for a discounted payment.
● The numbers in the Netflix reports are impressive, but its big problem is still here Surgery
● Netflix launches the route including commercials in November. how much will it cost
● Because of the cost of living – viewers of the streaming services are canceling subscriptions. What will the future of the industry look like?
Already at the beginning of next month, existing and new customers of Netflix will be able to join the new service, for $6.99 in the US compared to $9.99 for the equivalent package, which does not include advertising. A month after that, in early December, Disney will launch in its streaming service Disney+ a similar option to watch content combined with advertisements, for $7.99.
Netflix’s new service comes just half a year after it announced it was joining the growing trend of integrating advertising into streaming services. The company chose Microsoft’s advertising arm, Xandr, and shortly after, reports began to flow about how advertisements would appear next to its content for the first time.
Among other things, it was reported that in the first phase the package that includes advertising will be available in 12 countries, including the USA, Canada, Great Britain, Germany and France. The advertising time per hour will be 4-5 minutes, similar to what is customary in the television market today. Based on the example presented in the briefing The journalists on the subject seem to not be able to skip a commercial, and there may be more than one commercial before the start of an episode.
Similarly, on HBO MAX, advertisers will be given the option to integrate advertisements of 15-30 seconds in length, and the advertisements will be placed before and during the series and movies on the streaming service.
Potential of billions
Netflix does not disclose the advertising prices it plans to charge, except for the fact that during the launch phase the advertisements will be sold at a flat price. Estimates in the American advertising industry are that the company will set an upper limit of $60 per 1,000 views (CPM), which will allow it to register advertising revenues of $3-4 billion as early as 2023.
We note that today Netflix has 223 million paying subscribers, and in a recent forecast published by the investment bank JP Morgan, the number of new subscribers who will join its advertising-based service in the US and Canada alone is estimated at 7.5 million.
“Netflix takes into account that in addition to the new customers who will join, there will also be existing customers who will choose to switch to this program and pay a discounted price, and they are expected to bridge the price gap with the expected revenues from advertising,” says Liran Dan, founder of ReachRach, which specializes in personalized television advertising.
“We have already seen how streaming services, such as Disney’s Hulu, report that the average income from a customer subscribing to the advertising-based service is superior to that of a customer who pays a higher subscription price but does not watch advertisements.”
Custom advertising
As long as the television content was transmitted via cable, antenna or satellite, it was not possible to use advanced advertising tools as we all know from the personal computer or mobile phone. However, in the reality where most of the television content in the world is transmitted over the Internet today, these tools become extremely attractive for advertisers.
Not for nothing, advanced television advertising is today the fastest growing in this industry, and according to data from Innovid, for the first time in 2022, video advertising on connected televisions (CTV) has overtaken video advertising on mobile phones.
Already today, most advertisers in the US report increasing budget transfers to personalized television advertising. “The technological capabilities available today allow advertisers a new wide range, from submitting location-based advertising to the ability to increase and refine the audience you are targeting,” says Dan.
Recently, the viewing measurement company Nielsen published a figure showing that for the first time in July, viewing of streaming services overtook cable viewing in the United States. Netflix is taking advantage of the momentum, and in a recent official announcement it stated that its advertising model is “an opportunity for advertisers to reach younger audiences who do not watch television linear”.
The technological challenge
Netflix is actually signaling its strategy to increase revenue in the coming years. After the company realized that the growth from new subscribers had crossed the peak, now the focus is on increasing revenue from new subscribers who watched the content and did not pay (the company has about 100 million subscribers who watch its content for free using the details of another subscriber), and from advertisers who for the first time will be able to attach their products to the content Netflix’s Rich.
According to Yael Fainero, CEO of Cinemadia’s Israel Development Center, “The launch of the ad-based service will accelerate the trend that has already begun, of finding additional sources of income for streaming services, beyond a subscription fee-based service that is affected by competitive pressure, and is not sufficient to receive a return on the huge investment in content and infrastructure.
“The service offered by Netflix at a lower price and lower transmission quality, with fewer features, without certain content and with the addition of advertisements, tries to balance the desire to reach additional audiences and generate additional revenue, and the risk of losing existing revenue from customers’ subscription fees at the higher price, and considering within the limits of the content rights agreements”.
Yael Fainero, Cinemadia / Photography: Sally Levy Farage
Fainero mentions that an effective advertising service in the world of streaming is a new field, “and there are technological and business challenges that the industry promotes. As the leader of the streaming market, the launch of Netflix will accelerate the field and help the world of television advertising to take a significant leap, and become a profitable source of income for the industry.”
If you remember that in the first four weeks of the launch of the program “The Squid Games” it was watched a cumulative 1.65 billion hours, you can understand the potential inherent in the new path that Netflix has chosen.